By Paul Dobson Dec. 3 (Bloomberg) -- European bonds fell after the region’s central bank took the first steps toward winding down the emergency lending it introduced to help the $13.6 trillion economy recover from the worst recession since World War II. The yield on the 10-year German bund rose to its highest level in a week after European Central Bank President Jean- Claude Trichet said the ECB won’t be renewing its 12-month loans after December and will conduct this month’s operation at an average minimum bid rate. Eighteen out of 19 economists surveyed by Bloomberg predicted the ECB would keep a fixed rate on the loans at 1 percent. “It will make investors nervous that the ECB is removing liquidity support for the banking sector at a faster pace than expected,” said Nick Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets Ltd., a broker for banks and money managers. The yield on the 10-year bund rose 5 basis points to 3.21 percent as of 2:15 p.m. in London, after earlier climbing to 3.22 percent, the highest level since Nov. 26. The 3.25 percent security due in January 2020 fell 0.4, or 4 euros per 1,000-euro ($1,502) face amount, to 100.37. The two-year yield climbed 9 basis points after earlier advancing by 13 basis points, the most since Nov. 18. End of Recession The European Union’s statistics office in Luxembourg confirmed today that the region’s economy emerged from the worst slump in more than six decades in the third quarter. Markit Economics confirmed an initial estimate showing a composite index based on a survey of purchasing managers in the 16-nation euro area increased to 53.7 in November from 53 in October. The region’s economic recovery is continuing into the fourth quarter, Trichet said. Policy makers left the benchmark interest rate unchanged at 1 percent, as predicted by all 54 economists in a separate Bloomberg survey. The decision for the bank loans was not a signal about the ECB’s intentions for the main refinancing rate, Trichet said. The yield on 90-day Euribor futures expiring in September 2010 rose 6 basis points to 1.49 percent as traders trimmed bets that the ECB will keep rates on hold throughout next year. The ECB began buying covered bonds this year and offered banks unlimited loans to boost the economy. Trichet said Nov. 20 that the bank will gradually withdraw the emergency cash it has pumped into the economy in order to ensure it doesn’t fuel inflation. “The improved conditions in financial markets have indicated that not all our liquidity measures are needed to the same extent as in the past,” Trichet said. German 10-year bonds fell, pushing the yield up 3 basis points, after the last meeting of ECB policy makers on Nov. 5, when Trichet said they would withdraw some of the liquidity measures they had used to boost growth as the economy improves. The ECB will lend banks 150 billion euros of funds this month, according to the median of 19 economists in a Bloomberg News survey. To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

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